Pyramid Research Analysis

Three More 3G Operators in Japan

Japan’s telecommunications regulator, the Ministry of Internal Affairs and Communications, formally announced the guidelines for the allocation of the frequency division duplex (FDD) 1.7GHz and the 2.0GHz bandwidth guards on the Time Division Duplex (TDD) standards earlier this month. New entrants will be given priority for each of the two licenses in the 1.7GHz band and the sole license in the 2.0GHz band. e-Access and Softbank BB are the likely recipients of mobile services while IP Mobile Inc., a subsidiary of Multimedia Research Institute, is the main contender for the TDD license. As the pool for new additions in the current 90m-strong mobile subscriber base wanes, the Japanese mobile market is set to become more competitive than ever.

The available licenses include 5MHz in the nationwide 1.7GHz band will be allocated to 2 new mobile operators upon the approval of submitted business plans. Currently there are 15MHz within the 1.7GHz band of which each successful applicant will receive 5MHz, with the remaining allotment still to be determined. 15MHz within the 2.0GHz will be allocated to one new player. There is still 20MHz available in the 1.7GHz band covering the metropolitan areas of Tokyo, Nagoya and Osaka. This block will be distributed to new entrants and existing players when the current spectrum is fully utilized.  All those who are granted licenses are expected to begin operations no later than two years after the license is issued. They are also mandated to have at least 50 percent coverage as specified by their license.

Within the next two years, the intensified competition from additional licenses will put severe pressure on margins. Pyramid Research estimates that by the end of the year, the mobile market will generate US$67b in service revenues, the broadband market will generate US$9b and VoIP traffic will account for US$263m. New entrants in the market will depress prices and lower ARPS, particularly in the mobile market. In Japan, this potential entry is worrisome for existing players, compounded by the threat of Mobile Number Portability which will be introduced in 2006. A second effect on the mobile market will be the hastening of the switch to 3G technologies and an aggressive push towards 4G.